Without investment intellectuals such as Jack L. Treynor, along with academics who became Nobel laureates like Harry M. Markowitz, William F. Sharpe and Eugene F. Fama, index funds would not be possible and even 401(k) plans would not enjoy their viability and growth.
Mr. Treynor paved the way for others, contributing original ideas on which many built, and publicized the thinking of others. Mr. Markowitz identified the relationship of risk and return and the benefits of portfolio diversification. Mr. Sharpe simplified and optimized portfolio selection with the capital asset pricing model. Mr. Fama showed that the market is efficient, challenging the professed information advantage of active investment management.
The financial services industry must search out thinkers with new ideas and support them as Mr. Treynor did and test the ideas.
Mr. Treynor, who died May 11, was at the forefront of investment management discoveries. He is recognized for the central insight that led to the capital asset pricing model, and credited as one of four developers of CAPM whose work emerged almost simultaneously, as well as for the outgrowth of that work, and his role as part of a group that inspired the pioneering concept of index investing.
Index funds, despite early resistance from entrenched interests, have become a foundation of equity management, consistently outperforming most active managers and providing, especially for 401(k) participants, a user-friendly, diversified, low-cost way to build retirement savings, giving them and plan sponsors more confidence in defined contribution plans.
Developing and promoting new ideas isn't easy. But Mr. Treynor showed the way as editor of the Financial Analysts Journal. Newer thinkers in the mold of Mr. Treynor need encouragement to step up with new ideas to keep up with the dynamics of the market in investment and global corporate competitiveness, and to pioneer further improvements in investment management and retirement programs leading to better outcomes for participants in terms of retirement income.
Mr. Treynor recognized that many investment intellectual pioneers faced resistance to new ideas from entrenched money management interests. As editor of the Financial Analysts Journal from 1969 to 1981, Mr. Treynor sought to create a forum for publishing new ideas, despite objections.
Mr. Treynor “had to fight some vicious headwinds to bring quantitative finance to the attention of investment practitioners by publishing quantitative (investment) articles in the FAJ as editor of the journal,” said Bruce I. Jacobs, principal, Jacobs Levy Equity Management Inc. “Many in the profession at the time were averse to equation-heavy and statistically based articles, which were anathema to traditional money management and seemed to threaten their livelihoods.”
Barbara S. Petitt, head, journal publications and managing editor, Financial Analysts Journal, said in an e-mail that Mr. Treynor “contributed so much to bridging the gap between theory and practice.”
The investment management industry needs to encourage more thinkers like Mr. Treynor, who pioneered in developing ideas and also helped to bring them to practical application. n
